4 Terms of Service That Should Make You Think Twice Before Signing

NEW YORK (MainStreet) – It’s increasingly rare to find an online service or a piece of software that doesn’t require you to sign off on some sort of terms of service agreement. And it’s almost as rare to find someone who actually reads the whole thing before clicking “agree.”

“They’re usually unreadable, filled with legalese, and consumers have little motivation to read the entire thing,” says Hanni Fakhoury, a staff attorney for the Electronic Frontier Foundation, a digital rights advocacy organization.

Unfortunately, clicking that button is legally tantamount to signing a contract. The EFF noted in a 2009 white paper that American courts have generally held such “clickwrap” agreements to be legally enforceable contracts so long as consumers are presented with the agreement and required to click or check off that they read it. (By contrast, “browsewrap” agreements, in which terms of service are simply available for viewing somewhere on a Web site, have been held to more scrutiny in courts.)

But while consumers tend to treat these agreements as mere formalities, companies use these long documents to tip the scales in their favor in various ways, indemnifying themselves against legal liabilities and getting consumers to surrender privacy and intellectual property rights.

Consumers usually aren’t given the option of negotiating the terms of the agreement: You either click “agree” or you don’t get to use the service or software. Still, if you value your rights to the point that you’re willing to forgo the use of the service in question, there are certain terms that should make you think twice about checking the “agree” box. Here are a few of the more egregious ones.

Binding Arbitration and Class-Action Bans

When a group of consumers feels collectively wronged by the actions of a company, their best course of action is usually to file a class-action lawsuit, which saves the individual consumer the time and money it would cost to hire their own lawyer and litigate individually.

Such suits are expensive for a company to defend against, which is probably why many companies use terms of service and end-user license agreements to quietly relieve consumers of their rights to class-action suits. So-called forced arbitration clauses simultaneously compel users to give up their rights to participate in a class-action lawsuit and consent to an arbitration hearing to resolve any conflict.

Such terms used to be illegal in some states.

“States like California and Washington held that class-action bans within forced arbitration clauses are unconscionable, which means that they’re harmful to consumers, deny people legal rights and let companies off the hook,” explains Christine Hines, consumer and civil justice counsel for Public Citizen, a consumer advocacy group. But that all changed with last year’s U.S. Supreme Court decision in AT&T v. Concepcion, which held that the federal law pre-empted state laws and made such clauses legal.

In the wake of that decision, there has been an uptick in such clauses. Sony, clearly worried about class-action suits in the wake of its PlayStation network data breach, inserted such a clause in that network’s new terms of service. And just last month, Microsoft followed suit by inserting a similar clause in the terms of service for its Xbox Live.

In some cases a company will give its customers the option of opting out of such a clause, as Sony did when it announced the change. But most of the time, a consumer who wishes to use a product or service will simply have to consent to give up their class-action rights.

Recurring Billing

We can understand why people might skip reading the terms of service when they’re signing up for a free Web service or trying to use a piece of software they’ve already bought, but if you’re signing up for a service that requires a credit card number you should be going over those terms and conditions with a fine-toothed comb to see if they’ll automatically charge your card.

“For some services, such as antivirus software, you’re buying a one-year update agreement, and typically they’re opting you in to sign up for another year for the going rate,” says Erik Larson, president and founder of NextAdvisor, a consumer service review site. “Ask yourself, is this a one-time thing, or are they billing me again?”

The answer to that question can usually be found in the terms of service, where it will explain whether you’re opted in for automatic renewal of your subscription. That’s particularly true of free trials for services such as Netflix, Amazon Prime or Xbox Live, all of which require you to input your credit card info when signing up for a free week or month of service. Their hope, of course, is that you’ll like the service enough to continue on beyond the free trial – or failing that, forget you signed up in the first place.

Such a clause in the term of service shouldn’t be enough to dissuade you from signing for a subscription service. But you should make special note of when the service is set to auto-renew so you don’t miss it and get stuck with a charge for a service you’ve stopped using.

“Put it on your calendar,” Larson suggests.

Third-Party Sharing

People are beginning to realize that the time they spend screwing around on the Internet can be a very valuable commodity to certain companies.

That’s because your Web browsing and e-commerce habits can provide a valuable insight into your likes and dislikes, which in turn allows third-party advertisers to tailor ads that they think you’ll like. (Google is particularly interested in what you do with your time, and you can even see the online dossier the company keeps on you.)

Selling your usage data to third parties isn’t something companies like to publicize, so you’ll need to take a good look at the terms of service and privacy policy to see what, exactly, companies are doing with your data. The good news is that once you find it, you’re often given the opportunity to opt out of such third-party data sharing. That was the case with Verizon Wireless, which sent subscribers an email in October informing them that browsing data would henceforth be shared with third parties; the email contained easy instructions for opting out of the data sharing.

“You want to see if there are any opportunities to opt out from the use of information you provide,” says Paul Stephens, director of policy and advocacy for Privacy Rights Clearinghouse, a consumer advocacy group.

It’s worth noting, however, that even a company that insists it doesn’t share data with third parties may still make liberal use of your information.

“Any of these companies can use your information for any affiliate company, and for the big financial services companies, they’ve got affiliates all over the place,” says Ira Rheingold, executive director of the National Association of Consumer Advocates.

Terms May Change

If you’re one of the few people to actually read these terms of service all the way through, congratulations on being one of the more conscientious consumers around. Unfortunately, your hard work may all be for naught: As you probably discovered when you got all the way to the bottom of the document, the company reserves the right to change the terms at any time.

“They can update the terms at any time, and there’s not a lot you can do about it,” observes Larson, of NextAdvisor.

Much as Verizon did when it began sharing browser data with advertisers, major companies will usually inform consumers of substantial changes to the terms of service, if only to avoid the backlash that may come of trying to make changes behind consumers’ backs. But the effort they put into advising consumers of these changes varies wildly from company to company.

Take Facebook, for instance. The company says that it will provide notice of any pending changes to its terms and conditions, and give users an opportunity to comment on those changes. But to get this notice you’ll need to “Like” the Facebook Site Governance page, and for your comments on a proposed change to make any difference, at least 7,000 users must comment on the post announcing the change.

“With Facebook, the big problem is how frequently the terms of service change,” says Stephens, of Privacy Rights Clearinghouse. “You sign up, and even if you take time to read [the terms], in all likelihood a month later it will change.”

And just as Facebook sets a high bar for challenging changes to its terms of service, it’s rare for consumers to have much recourse when the terms and conditions change. While Verizon Wireless users were allowed to opt out of data sharing and PlayStation Network users had 30 days to opt out of the forced arbitration clause, the more typical situation is the one we saw with Xbox Live last fall: If you didn’t consent to the changes to the terms and conditions, you simply weren’t allowed to use the service anymore.

Matt Brownell is a staff reporter for MainStreet. You can reach him by email at matthew.brownell@thestreet.com, or follow him on Twitter @Brownellorama.